Stock Market Investment Introduction Session 1A

Session 1 A: Introduction to Equities uWhat are shares and why do companies issue them? uWhere do these shares trade? uWhat makes the price of these shares go up and down? uWhere do I find investment information?

The Company Discovery Café cyber café

The Company uThe Company Founders divide the company into shares based on their initial contribution. Elisabeth Oltheten Chairman of the Board

The Company uAs the Company grows the need for financing extends beyond the resources of the original partners. Elisabeth Oltheten Chairman of the Board

Shares uLets divide the company into 3,000 shares uLets keep 50% in the hands of the founders… … and sell the remaining 1,500 shares at $100 per share uThis brings $150,000 of additional capital into the company.

Shares MAIN STREET Shares for Sale

Common Shares uThe new partners are shareholders. uShareholders have equity,- partial ownership,- of the company. uCommon shares represent ownership of the company. Discovery Cafe This is to certify that Elisabeth Oltheten is the record holder of 3,000 shares of The Discovery Cafe Company signed and authorized John Q. Dorset Transfer Agent Elisabeth Oltheten Chairman of the Board

The Company Elisabeth Oltheten Chairman of the Board

Market Value uThe Market Value of a share is the most recent price at which the share was bought and sold.  If someone bought shares of Discovery Cafe for $100 per share, then your shares are probably worth close to $100 per share too.. uThe Capitalization is the market value of the company  Discovery Cafe has 3,000 shares outstanding; at a market value of $100 per share, the company is capitalized at $300,000.

Price Movements The Mayor has coffee and a croisssant at the Discovery Café and gets food poisoning. The Price goes down

Market Value If you purchased 100 shares of Discovery Cafe at the initial price of $100 per share then at $50 per share your $10,000 investment is now worth $5, * $100 = $10, * $50 = $5,000 The company’s market capitalization is now 3000 * $50 = $150,000

Price Movements The Governor holds a Press Conference at the Discovery Café and says it’s his favorite place. The Price goes up

Market Value If you purchased 100 shares of Discovery Cafe at the initial price of $100 per share then at $120 per share your $10,000 investment is now worth $12, * $100 = $10, * $120 = $12,000 The company’s market capitalization is now 3000 * $120 = $360,000

Price Movements The Price of the stock goes up and down based on the perception of the underlying value of the company.

Going Public uAs Discovery Cafe becomes more successful we can open branches across the country. To finance this expansion we can issue and sell more shares. uHaving exhausted our supply of family and friends we now wish to sell shares to the general public.

Going Public uWe decide to create and sell 100,000 Class B shares to the general public. uWe must register our stock with the Securities and Exchange Commission. uWe must issue a prospectus. uUntil the SEC approves our application we must bind our prospectus in red. This is called the Red Herring.

Initial Public Offering uOur Investment Bank agrees to underwrite the Discovery Cafe issue. uThe day before the shares are offered to the public the underwriter prices the issue. If our underwriter prices Discovery Cafe at $40 per share then our 100,000 shares generate $4 million. uThe following day the underwriter sells the shares to the public.

Over the Counter Our stock will trade over the counter and be quoted as part of NASDAQ - probably under small cap issues. If there is enough activity in Discovery Café then our stock will be listed with the National Market Issues. We will be assigned a four character ticker symbol. (CAFE)

Listing If we meet the listing requirements of the American Stock Exchange (AMEX) or the New York Stock Exchange (NYSE) we can list Discovery Café on an exchange. Our stock will be given a one, two, or three character ticker symbol. (DC)

The End